At least that is the case for the healthcare obligations of most states and local areas, though Robert Pozen points out that this is likely to change soon (available here). This is something I discussed when Detroit went through bankruptcy proceedings. Pension and healthcare obligations of the city made a contribution to the bankruptcy, but only because the broader electorate allow it. If we get accurate accounting and compel elected officials to use realistic discount rates there would be a better sense of the amount of these obligations. The proposed accounting changes are a step in the right direction, requiring more transparency and better assumptions.

The essential point remains that governments committed to these benefits. If the public feels the benefits are excessive they need to elect new politicians or make it clearer what they judge to be acceptable terms. Then the people need to make sure the politicians honor these agreements. The current accounting procedures seem to make it clear that the public needs both more and better information. If we continue down this road with governments declaring bankruptcy and failing to meet their benefit commitments it will be interesting to see if unions change negotiation strategies and require higher pay if they believe future benefits are less secure.

This work by Flynnglis is licensed under a Creative Commons Attribution-NonCommercial 4.0 International